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Week 4 Assignment

The document discusses optimal inventory policies for various scenarios involving constant demand, reorder costs, and holding costs. It outlines calculations for economic order quantity (EOQ), reorder levels, and the impact of lead times on inventory management. Additionally, it addresses the implications of uncertain costs and demand forecasts for new items.

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agaber506
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153 views1 page

Week 4 Assignment

The document discusses optimal inventory policies for various scenarios involving constant demand, reorder costs, and holding costs. It outlines calculations for economic order quantity (EOQ), reorder levels, and the impact of lead times on inventory management. Additionally, it addresses the implications of uncertain costs and demand forecasts for new items.

Uploaded by

agaber506
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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EOQ and ROL

1. Demand for an item is constant at 1,000 units a year. Unit cost is £50, reorder cost is
£100, holding cost is 25 per cent of value a year and no shortages are allowed.
Describe an optimal inventory policy for the item. What order size will give a
variable cost within 10 per cent of optimal? What is the cost if suppliers only make
deliveries of 200 units?
2. A company is introducing a new item and it has forecast likely demand next year as
between 100 and 130 units. The costs are uncertain, but the reorder cost is
somewhere between $50 and $70, and the holding cost is between 20 per cent and
25 per cent of unit cost a year. If the unit cost is $200, what can you say about the
order size?
3. Per Norstrom supplies computer systems to a warehouse in Rotterdam. He sells 16
systems a week. The cost of an average system is $5,000, while order administration
costs and delivery from Malaysia cost $1,000. The lead time is around 4 weeks and
holding costs are around 16 per cent a year. What policy would you recommend for
Per?
4. Demand for an item is constant at 40 units a week, and the economic order quantity
is calculated to be 100 units. What is the reorder level if lead time is constant at 4
weeks? What is the effect of adding some safety margin and raising the reorder level
by ten units? What happens if the lead time (a) falls to 2 weeks or (b) rises to 6
weeks?
5. Demand for an item is steady at 1,800 units a year with an ordering cost of $22 and
holding cost of $1.5 a unit a year. Describe an appropriate ordering policy if the lead
time is constant at:
(a) One month
(b) 3 months
(c) 6 months
(d) 12 months

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